Personality and Patterns of Savings: the Theory of Economic Growth beyond Optimal Behaviour

Orlando Gomes

Economic Issues Journal Articles, 2022, vol. 27, issue 2, 1-30

Abstract: In optimal growth models, in which the goal of the representative agent is to maximise intertemporal utility, the time trajectories of consumption and savings are endogenously determined. Deviations from such trajectories are not desirable and the rational economic agent will act with the purpose of avoiding them. Despite this logical argument, empirical evidence reveals a wide diversity of savings behaviour across the population: individuals with similar initial conditions and facing identical constraints often adopt savings patterns that are far from being coincidental. Such observation suggests that personality traits interfere in savings decisions, and eventually divert these decisions from those leading to purely optimal outcomes. Even when individuals know the optimal solution, their personality may compel them to act as savers or spenders, to a greater or lesser extent. This paper explores the impact and implications of different personalities in shaping savings and consumption trajectories, in the context of a standard growth model. Analytical results are derived for models of neoclassical growth and for models of endogenous growth. In a first stage, a standard infinite horizon scenario is considered. Subsequently, this is complemented by a setting of finite life cycles, where growth outcomes of a given generation are likely to be influenced by the consumption-savings decisions of the precedent generation.

Keywords: Endogenous growth; Life cycle choices; Neoclassical growth; Personality traits; Savings (search for similar items in EconPapers)
JEL-codes: D14 E21 O41 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eis:articl:222gomes

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